The UK economy continues to make progress. According to the National Institute of Economic and Social Research (NIESR), a respected think tank in the United Kingdom, the UK economy has surpassed its pre-recession peak reached in January 2008. The NIESR predicts just under 1% growth in the second quarter for the UK.

As the UK economy shows improvement, the gains in the labor market continue. The unemployment rate for claimants has fallen to 3.2% in May from 3.3% in April. This rate is down from a cycle high of 4.9%. The UK unemployment rate, the latest available for March, is down to 6.6%. The International Labor Organization (ILO) reported that the UK unemployment rate has declined to 6.6% for the three-month period ending in April from 7.2% during the previous November-January period. That's a sharp drop.

The number of unemployed fell by 25,000 in May after falling by 30,000 in April as the job market progress continues. The unemployment rate for claimants is in the bottom 25 percentile of its queue of rates back to January 2007. The overall unemployment rate, which is up-to-date through March, is in the lower 4.9% of its historic queue on that same timeline. The number of unemployed has fallen. It is also in the bottom 25th percentile of its historic queue, dating back to January 2007. All these statistics show that current levels of unemployment or of the number of unemployed have made substantial progress compared to past levels.

Turning to earnings, overall earnings rose by 1% in April. Manufacturing earnings rose in step. Over 12 months, total earnings are down by 1.6%; earnings in manufacturing have risen by 0.5% on that period. Expressed in real terms, total earnings grew by 0.2% in April after falling by 0.5% in March. Overall real earnings are falling at 1.6% annual rate over three months, a 0.6% annual rate over six months and are lower by 3.4% over 12 months. The UK real earnings figures are the one clear negative in the assessment of the UK labor market. What's good for employers' costs is not always good for workers' incomes. Total nominal earnings and manufacturing earnings are down by less than 4% from their past cycle peak. The year-over-year percent change in overall earnings is in the lower 2.3% of all year-over-year earnings growth figures back to January 2007. On the same basis, manufacturing earnings gains are in the bottom 4.5% of their queue. Expressed in real terms, overall earnings were in the bottom two and one-half percent of all annual earnings growth figures back to November 2010. Those are weak results

Overall the UK shows a strong progress in the improvement of its labor market. The number of unemployed is going down and the unemployment rate is falling steadily. However, the earnings made by workers are slow in advancing relative to inflation. This could be the weak spot in the UK recovery. As the Bank of England calibrates its policies based on the degree of slack in the labor market, the falling rate of unemployment keeps cutting the assessment of slack but the failure of labor compensation to rise significantly underscores the continuing presence of slack. In setting its policies, the central bank will have to sort out that dichotomy.